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Based on Ethiopian Rural Household Survey (ERHS) data, this study used a two-step dynamic nonlinear panel data model to analyze the impact of informal risk sharing (IRS) strategies on poverty dynamics. The model better explains the dynamic process of rural poverty in Ethiopia, which reveals the existence of true state dependence confirming other empirical findings from Ethiopia. Size of land owned, number of oxen, male headship and higher educational attainment reduces the risk of poverty. Many of IRS strategies significantly reduce current poverty. However, in the long-tem receiving remittance and food gift prolongs poverty. While saving and quasisaving means such as lending to others and membership in Eqqub have a poverty reducing impact both currently and in the long-tem. This implies institutional interventions that makes saving safe and more convenient through saving-oriented microfinance institutions, formal banks or postal saving arrangements may increase the capacity of self-insurance and reduce poverty. Conversely, the crowding out of some of informal arrangements, remittance and food gift, may have valuable social benefits through ameliorating adverse incentive problems.